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The Journal of Alternative Investments

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Financial Innovations and the Shaping of Capital Markets

The Case of CDOs

Laurie S. Goodman, Douglas J. Lucas and Frank J. Fabozzi
The Journal of Alternative Investments Summer 2007, 10 (1) 62-70; DOI: https://doi.org/10.3905/jai.2007.688994
Laurie S. Goodman
A managing director and Co-Head of Global Fixed Income Research, UBS in New York, NY.
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  • For correspondence: laurie.goodman@ubs.net
Douglas J. Lucas
An executive director and head of CDO Research, UBS in New York, NY.
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  • For correspondence: douglas.lucas@ubs.com
Frank J. Fabozzi
Professor in the practice of finance at the School of Management, Yale University in New Haven, CT.
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  • For correspondence: frank.fabozzi@yale.edu
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Abstract

Collateralized debt obligations (CDOs), first introduced into the financial markets in 1987, is an application of the securitization technology first applied to the creation of residential mortgage-backed securities. With annual issuance exceeding $100 billion in 1998 CDOs were the fastest growing investment vehicle of the last decade. This article demonstrates that the CDO market has become large enough to dominate the respective underlying collateral markets. It does so by examining three collateral types: high-yield loans, mezzanine mortgage asset-backed securities, and trust preferred debt. The results show that issuance of CDOs backed by these asset types has steadily increased and has lead to an increase in the issuance of the underlying as well as tightening of its spreads.

TOPICS: CLOs, CDOs, and other structured credit, credit risk management, financial crises and financial market history

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The Journal of Alternative Investments
Vol. 10, Issue 1
Summer 2007
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Financial Innovations and the Shaping of Capital Markets
Laurie S. Goodman, Douglas J. Lucas, Frank J. Fabozzi
The Journal of Alternative Investments Jun 2007, 10 (1) 62-70; DOI: 10.3905/jai.2007.688994

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Financial Innovations and the Shaping of Capital Markets
Laurie S. Goodman, Douglas J. Lucas, Frank J. Fabozzi
The Journal of Alternative Investments Jun 2007, 10 (1) 62-70; DOI: 10.3905/jai.2007.688994
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